Correlation Between Spirent Communications and Heidelberg Materials
Can any of the company-specific risk be diversified away by investing in both Spirent Communications and Heidelberg Materials at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Spirent Communications and Heidelberg Materials into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Spirent Communications plc and Heidelberg Materials AG, you can compare the effects of market volatilities on Spirent Communications and Heidelberg Materials and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Spirent Communications with a short position of Heidelberg Materials. Check out your portfolio center. Please also check ongoing floating volatility patterns of Spirent Communications and Heidelberg Materials.
Diversification Opportunities for Spirent Communications and Heidelberg Materials
0.52 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Spirent and Heidelberg is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Spirent Communications plc and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials and Spirent Communications is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Spirent Communications plc are associated (or correlated) with Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of Spirent Communications i.e., Spirent Communications and Heidelberg Materials go up and down completely randomly.
Pair Corralation between Spirent Communications and Heidelberg Materials
Assuming the 90 days horizon Spirent Communications is expected to generate 5.63 times less return on investment than Heidelberg Materials. In addition to that, Spirent Communications is 2.79 times more volatile than Heidelberg Materials AG. It trades about 0.01 of its total potential returns per unit of risk. Heidelberg Materials AG is currently generating about 0.12 per unit of volatility. If you would invest 5,439 in Heidelberg Materials AG on October 13, 2024 and sell it today you would earn a total of 7,336 from holding Heidelberg Materials AG or generate 134.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.8% |
| Values | Daily Returns |
Spirent Communications plc vs. Heidelberg Materials AG
Performance |
| Timeline |
| Spirent Communications |
| Heidelberg Materials |
Spirent Communications and Heidelberg Materials Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Spirent Communications and Heidelberg Materials
The main advantage of trading using opposite Spirent Communications and Heidelberg Materials positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Spirent Communications position performs unexpectedly, Heidelberg Materials can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Heidelberg Materials will offset losses from the drop in Heidelberg Materials' long position.The idea behind Spirent Communications plc and Heidelberg Materials AG pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.
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